There Is No Such Thing as Cryptocurrency

The next time someone talks to you about blockchain or cryptocurrency, you should politely say to them, There is no blockchain and there is no such thing as cryptocurrency.

Theyll look at you funny, as if youve been living under a rock or just dont get the latest thing in technology. Now youve got them where you want them.

You then go on to explain, There is no blockchain. There are thousands of blockchains. There is no single cryptocurrency. There are thousands of cryptocurrencies. And theyre all different!

That last point is the critical one Theyre all different.

Its the same way you would think about stocks. It may be interesting if the stock market went up or down today, but what you really care about is your particular portfolio of stocks.

If you own IBM (IBM), Walmart (WMT) and Amazon (AMZN), then you care about those stocks. If Boeing (BA) went down, thats too bad for Boeing holders, but it has no impact on you if you dont own it.

And no one believes that Walmart and Boeing are interchangeable. Theyre completely different companies with diverse business models and revenue prospects.

Thats important to bear in mind because too much of the cryptocurrency discussion these days focuses on generalities and broad-brush statements without drilling down on the particulars.

My readers know that I consider bitcoin (BTC) a dead-end cryptocurrency and would not hold it in a portfolio.

Yet Im convinced that blockchain technology, or what we call distributed ledger technology (DLT), has a bright future. And cryptocurrencies that perform useful functions in an efficient manner on DLT platforms have a bright future as well.

The key to reaping gains from those potentially successful cryptos involves diligence and research as well as finding the right entry point for an investment.

Generally speaking, the new early-stage cryptos have better prospects than some of the well-known names because developers of the new cryptos have learned from the mistakes of the pioneers.

If youre a golfer with a foursome on the green, you know its advantageous to putt last because you can go to school on the missed putts of your partners. Youll watch their putts, read the quirks on the green and improve your own putting.

Its the same with cryptos.

The early coins had problems of scalability, sustainability and processing time. Thats why they are dead ends. The newer coins solve many of those problems with improved governance models for validating the ledger and layering solutions for improved processing time.

The new cryptos went to school on the mistakes of the old ones.

A second wave or new generation of cryptocurrencies is now emerging with better governance models, more security and vastly improved ease of use.

These new-wave coins represent the future of the cryptocurrency technology. These cryptos have much greater potential to disrupt and disintermediate established payments systems and financial intermediaries such as banks, brokers and exchanges.

It is critical that investors have a robust and reliable method for distinguishing between the dead-end cryptos such as bitcoin and the new-wave cryptos with a chance to disrupt banks the way Uber disrupted taxis or Airbnb disrupted the hotel industry.


Jim Rickards
for The Daily Reckoning